MBA raises 2020 forecast to over $3T in total volume

The Mortgage Bankers Association has raised its 2020 origination forecast to over $3 trillion, but it is more conservative in its outlook than Fannie Mae.

It is in refinance volume where the two forecasts diverge the most.

In its September forecast, the MBA projects $3.14 trillion in total volume, with 56% coming from refinancings. That compares with its August outlook of $2.98 trillion, with refis having a 55% share of production.

However, Fannie Mae sees 2020 as a potential record year (by its measures) for loan origination at $3.87 trillion, including both the second and third quarters each topping $1 trillion in total volume. That forecast projects a 63% refinance share for the year, with the second quarter alone having a 69% share.

The difference between the two outlooks hinges on how the two see interest rate movements, said MBA Chief Economist Mike Fratantoni in an interview.

Fannie Mae expects the 30-year fixed-rate mortgage to dip under 3% in the fourth quarter and remain there all of 2021. The MBA's forecast has rates rising from 3% for the current quarter to 3.3% by the fourth quarter of next year.

"Our expectation is, that with an improving economy and with the Fed at some point beginning to slow their pace of asset purchases, Treasury [yields] and mortgage rates will rise somewhat," said Fratantoni. "Couple that with, as the Congressional Budget Office highlighted yesterday, enormous federal budget deficits, which are going to lead to very substantial financing needs for the Treasury Department. We think that's going to put a little bit of upward pressure on rates."

The forecast could change depending on whether there is another substantial wave of new COVID-19 cases or a delay in a vaccine coming to the market. A sharp downturn in the economy could mean rates stay at current ranges, although the MBA sees that scenario as less likely, Fratantoni said.

The MBA and Fannie Mae forecasts are more aligned when it comes to purchase volume for this year and next.

Home purchases should benefit from positive trends in the job market, along with very strong numbers in household formations, with millennials reaching peak first-time homebuyer age. Those factors, along with low mortgage rates, will support this activity over the next couple of years, Fratantoni said.

The existing-home sales report released on Tuesday noted a 2.4% gain month-to-month in transactions. An 11.4% year-over-year gain in home prices was driven by the lack of inventory.

Supply constraints and tightening credit availability are the biggest concerns regarding housing market growth in the next year, according to MBA Associate Vice President Joel Kan.

"It is concerning that housing inventory continued to decline last month and was over 18% lower than in 2019," Kan said. "This lack of supply continues to push home-price growth higher. The 11% gain in prices is far above income growth and threatens overall affordability, especially for first-time buyers."

Credit availability has tightened up for borrowers during the pandemic, with the MBA reporting earlier this month that the Mortgage Credit Availability Index was at a six-year low. But conditions will likely be better in the next year if the stock market improves and most borrowers in forbearance resume making payments, Fratantoni said.

"But if it stays very tight, and we're really relying on potential first-time home buyers to power the purchase market next, credit is going to be a constraint as well," he continued.

The MBA projects $2.2 trillion of volume in 2021, a slight increase from August's prediction of $2.1 trillion. Next year, the group expects 65% of originations to come from purchases and 35% refis. For 2022, the forecast is unchanged from $1.9 trillion, with 78% of that coming from purchase loans.